A Final Present? The Last Child Tax Credit to Arrive on December 15

ElitePersonalFinance
Last Update: November 25, 2021 Financial News

As part of U.S. President Joe Biden’s American Rescue Plan, the 2021 Child Tax Credit (CTC) increased from $2,000 per child to $3,000 per child for children over the age of six, and from $2,000 per child to $3,600 per child for children under the age of six. And after the Internal Revenue Service (IRS) revealed that nearly nine in 10 children would qualify for the expanded credit, it amounts to almost 66 million children in the United States.

The maximum adjusted gross incomes for eligible families are as follows:

  • $75,000 for individuals
  • 112,500 for a family with a single parent (Head of Household)
  • $150,000 for couples

For context, the monthly payments began in July 2021, with $250 per month allocated to families with children ages six to 17 and $300 per month given to children under six. Payments were sent automatically on the 15th of each month, and the final disbursement commences on Dec. 15.

Also noteworthy, the CTC typically arrives when eligible participants file their taxes. However, with COVID-19 stressing households’ finances, the U.S. government advanced half of the benefit so that families could stay afloat during the pandemic. So whether it’s $1,500 or $1,800, the other half will arrive when households file their 2021 taxes in 2022.

Better Late

For families that didn’t realize that they qualify for the CTC, don’t worry: you will still receive the total $3,000 or $3,600 credit as long as you file your 2021 taxes in 2022. However, for families still awaiting payment, a $1,500 or $1,800 windfall may arrive on Dec. 15.

To explain, the filing deadline to receive your 2021 CTC was Nov. 15. And for eligible families that haven’t received a payment in 2021, a lump sum of $1,500 or $1,800 will arrive on Dec. 15. What’s more, the stimulus payments should help families enjoy a successful holiday season. And with the economic impact in mind, the U.S. government hopes that advancing the benefits will spur GDP growth in the fourth quarter.

What If I Don’t Owe Any Taxes?

Typically, tax credits are considered ‘nonrefundable’ and offset your tax liabilities. For example, if you owe $10,000 in taxes in 2021, a tax credit of $1,500 will reduce your tax bill to $8,500. However, if you owe $1,000 in taxes in 2021, a tax credit of $1,500 will only offset the initial $1,000. Unfortunately, the other $500 is considered nonrefundable.

Conversely, because the pandemic upended the U.S. labor market and dislocated employees, the CTC is considered ‘fully refundable’ and provides a helping hand regardless of your tax status.

For example, if you owe $0 in tax in 2021, the $1,500 or $1,800 payment will still be deposited as a refund.

Do I Qualify for The CTC?

On top of the adjusted gross income requirements outlined above, six other factors determine your eligibility:

  • To qualify for the CTC, your child must be under the age of 18 at the end of 2021.
  • The definition of a child is broad: it can be your biological child, stepchild, a foster child, your nieces, nephews, grandchildren, and siblings/stepsiblings, as long as they meet the other requirements.
  • Your financial contributions must account for more than half of your child’s financial support in 2021.
  • Your child has to live with you for more than half of the 2021 calendar year.
  • You must claim your child as a dependent when you file your 2021 tax return.
  • Your child is a U.S. citizen, a U.S. national, or a U.S. resident alien.

Will The CTC Be Extended?

With Democrats and Republicans still fighting over the future of the CTC, the Biden administration wants to extend the benefit for “years and years to come.” However, Senate Minority Leader Mitch McConnell called the CTC “a monthly welfare deposit,” and Republicans oppose an extension.

Moreover, with inflation still surging in the U.S., Biden’s Build Back Better Framework – which includes the provisions for the CTC – faces fierce political opposition. And after McConnell reiterated his disdain for the bill on Nov. 19 and stated that with rampant inflation, to “print, borrow, and spend trillions more” will do more harm than good, it’s unclear whether the CTC will make it past 2022.

Conclusion

With the CTC offering a lifeline to U.S. families in need, the program has helped ease the pandemic’s burden in 2021. However, with half of the benefit pulled forward, that means less of a stimulus boost in 2022. Moreover, with inflation still rising in the U.S., the credit may not go as far as families expect. As a result, U.S. policymakers need to prioritize lowering prices in 2022 to ensure that families’ inflation-adjusted wealth doesn’t deteriorate further.

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